Re: Euro and Oil Intervention

["Henry C.K. Liu" <hliu@xxxxxxxxxxxxxx>]

Mason

A legitimate technical point.  But that line of thinking shifts CB function to
that of technical traders whereas, by definition, CBs are concerned with
fundamentals.  CBs are not in the market to make profit, as quantitative
traders are.  Technical traders need not bother with fundamentals, they have
the option of choosing market neutral strategies with convergence/divergent
trades.  Still, if technical traders begin to overshadow the market, as LTCM
did, they begin to bet against themselves.  Remember, the $1.6 trillion are
real transaction values, not notional values of derivatives.  Even for CBs,
$100 billion is a lot of money, larger than most CBs' dollar reserves except
three or four.  Clinton went on national TV this morning to brag about a $360
billion debt reduction in the past three years.  The day after the $5 billion
intervention, the euro resumed its fall.  The market is openly testing the CBs'
resolve with contempt.  With the exception of the Plaza Accord in 1985 when the
G7 coordinated to force the dollar down, no other CB intervention has
succeeded, including the Bank of England, let alone Thailand or Korea or
Mexico. Most CB intervention merely transfers wealth from the public to hedge
funds investors, exacerbating the conditions that originally caused the
currency to fall.

Now, if Greenspan lowers US interest rates, the euro will rise, but the
likelihood of that is not high until after sure signs of recession have
surfaced in the US. Greenspan, as the quintessential central banker, will never
admit to the immanence of a recession until after the fact.  It is the nature
of the beast

Henry


Mason Clark wrote:

> From: "Henry C.K. Liu":
>
> >The Central Banks of the US, EU, Japan, intervened on behalf of the euro
> >on September 23, 2000,  (snip)
>
> > On the practical side, it was an empty gesture. The CBs bought between
> > $3 to 5 billion of euros.  The daily turnover in the global foreign
> > exchange market hovers around US$1.6 trillion.   This volume dwarfs the
> > combined resources of the G7 CBs in terms of long term market
> > influence.
>
>   What about this arithmetic?  A *turnover* of US$1.6 trillion does not
>   prove $US1.6 trillion combined resources.  Maybe it's only US$1.6 billion
>   turning over a thousand times a day?  What is the correct measure of the
>   power of the CB's versus the exchange market?
>
>           Mason